- July 23, 2018
- Posted by: Umesh Paliwal
- Category: Blog
We have heard a lot about Fixed Deposit, PPF, EPF, MIS or NSC, in the past as these were probably the best saving instrument in the Indian market to generate extra income or create wealth in the long run. But slowly time is changing as our country is moving into lower interest rates regime wherein the conventional saving tool may not remain as lucrative as in the past. Below are the statistics for last 5 years to show how interest rates have declined from highs of 8.50%-9% in FY13 to lows of 6.75%-7.90% in FY17.
|Product||MIS||5 year NSC||PPF||*FD|
*FD rates of 1 years are taken from SBI(State Bank of India) bank.
As debt instruments are no longer a favorite to beat the heat of Inflation then what is the solution, the one answer could be stock market but then it requires a lot of money to invest and risk are as high as the sky.
What is that one new idea that can change our perspective to move from conventional saving to something which can pay a way to extra income which everyone wants in this high inflation scenario?
So today we are going to tell you the secret of making extra money with an initial investment of as low as Rs.15000. The answer to that mystery income is IPOs( Initial Public Offering), yes you heard it right, the IPOs. Let us learn about it, what an IPO is, how to apply in it and how much one can earn from it.
IPO( Initial Public Offering) is a tool to raise money from the stock market. It is a tool through which the company offered its shares to the public first time. The company is considered to be private before the IPO, having a small number of shareholders (such as the founders, their families and friends). The public, on the other hand, consists of an individual or institutional investor who wasn’t part of the company. Once Company issue shares through IPO the Public also becomes part of the business.
Why a company raises money from IPOs and not from Banks??
Suppose Mr.XYZ has been running his business of chair for the last 5 years and is also earning very good profits. Now one day he decides that he has to open a new factory to expand his business. He will need money to open a new factory. He can either go to banks for the money or through the IPO. If the company takes loans from banks, then it has to give interest on a yearly basis to it but the IPO is not like that. The IPO only requires you to issue new shares and the public become the shareholder of the company without paying anything. But remember, if it was so easy to raise money from the IPO, then every company market would get an IPO. Money can only be raised from the IPO when the performance of the company has been very good for the last 3-5 years and the future is expected to be even better. Now as you get the idea of IPOs let us quickly go through how to apply in IPOs.
How to apply in IPO?
First, open a Demat account. A demat account can be opened with any broker like Zerodha, 5paisa, Angel Broking etc. Then open the account with the bank having ASBA facility. Generally all the leading Nationalized and Private banks these days are having ASBA facility. Once you have a demat account and a bank account ready, you can apply an IPO through NetBanking.
How to improve chances of allotment in IPOs
We all know that allotment in IPOs is usually done through a lottery system. The question is how someone can improve his chances of allotment. The simple answer is to make as much account as you can in the name of your family members. More the number of accounts more will be the probability of allotment. Our research has discovered that you will have to open at least 5 accounts for better chances of allotment.
How much can an Investor earn from IPOs with an Investment of Rs.75000?
The cost of 1 lot in mainline IPOs is around Rs.15000. Let us consider you have 5 accounts through which you are applying in IPOs. So you will be requiring Rs. 75000 in your bank account for IPOs. Keep this amount separate only for IPOs and nothing else.
Let us suppose on an average 50 IPOs hit the primary market in India every year and if we consider a strike rate of 50%, then you will get one lot at least in 25 IPOs. The good IPOs generally leave enough for the investors to cash on and one can easily get at an average return of 10% on IPOs. So that means your earning would be 25*15000*10%= 37,500. As you can see that on the invested amount of Rs. 75000, one can easily earn Rs.37500 which is almost a 50% return in one year. This kind of return is hard to get with any kind of investment that we have discussed above.
Listing Performance of Some IPOs listed in 2017
|Sr.no||Company||Issue Price||Listed Price||%Return|
|1.||Salasar Techno Engg.||108||259||139%|
|3.||Apex Frozen Food||175||199||13.71%|
|6.||ICICI Lombard Life Insurance||661||650||-1.66%|
|7.||SBI Life Insurance||700||733||4.71%|
|11.||New India Insurance||800||748||-6.5%|
|14.||Max Financial Services||459||660||43.79%|
|15.||HDFC Life Insurance||290||311||7.25%|
|16.||Aston Paper & Board||50||114||56%|
As you have noticed above how brilliantly the IPOs had given listing gains that too in just around 12days ( time frame between issue and listing).
So till now, you must have understood completely the amount of return one can get in IPOs. However, the grass always looks greener on the other side as you have noticed some of the IPOs were listed in discount as well. Therefore, to avoid such IPOs, we the team of Investorzone is doing in-depth fundamental research on all the upcoming IPOs and guiding our investor to safely apply only in good companies.
Investorzone is an initiative towards making a community of investors to help each other in creating wealth. So let us join this bandwagon of success and be ready to gear up with your demat accounts to unveil the new money making instrument i.e. IPO.